Borrowers may obtain credit from lenders under a variety of terms and conditions. For example, a homeowner may borrow money from a lender based on the amount of equity the homeowner has accumulated in his or her house, i.e., the value of the homeowner's unencumbered interest in the property. The money may be borrowed as a home equity line of credit, which may allow the borrower to withdraw the money as needed up to a specified credit limit. The interest on the line of credit may be variable and, therefore, may fluctuate depending upon the general conditions in the credit markets. Interest may only accrue on the money that actually has been advanced from the line of credit. Thus, if the borrower has a $30,000 line of credit and takes a $20,000 advance, the borrower may only owe interest on the $20,000 and not on the $10,000 remaining in the line of credit.
The home equity line of credit typically does not have a fixed term and, like a credit card, may have a small minimum monthly payment. As such, the money that has been advanced from the line of credit may continue to accrue interest until the borrower has paid the outstanding balance in full. In some instances where the borrower only pays the minimum payment each month, the payment may only cover a portion of the accrued interest, resulting in negative amortization. That is, the unpaid interest increases the principal balance owed. This may lead to an ever-increasing debt load that extends into the future indefinitely.
In addition to, or in lieu of, a home equity line of credit, a homeowner may also borrow money as a fixed rate home equity loan in which the interest rate, the loan amount, the payment schedule, and the loan duration are all fixed. For example, a borrower may take out a $20,000 loan with an interest rate of 7% and a term of 60 months, or 5 years. The borrower will have a monthly payment of approximately $396, and the loan balance will be paid in full at the end of the loan term. Thus, one of the advantages of a loan over a line of credit is that the loan allows a borrower to budget a set monthly payment with the expectation that the loan amount will be paid in full at a specified time in the future.
Due to the flexibility associated with a line of credit, it is not uncommon for a borrower to initially set up a line of credit, such as a home equity credit line, to meet his or her financial needs. However, as the borrower uses the available credit, the borrower may wish to convert a portion or all of the credit line into a fixed rate loan to facilitate repayment of the borrowed money. This process may require the borrower to contact a customer service representative associated with the financial institution that has issued the borrower's line of credit. As is often the case, there may only be a limited number of representatives and the borrower may be required to wait on the phone until a representative becomes available. This process is time consuming and inconvenient, and may deter the borrower from converting the line of credit into a fixed rate loan.
In addition, if the borrower wishes to change one or more terms of the fixed rate loan offered by the financial institution, the customer service representative may not be trained or authorized to execute the transaction with modified terms. As a result, the representative may be required to seek and the advice and/or approval of a trained specialist or manager. This may further delay and complicate the process of converting the borrower's outstanding line of credit to a fixed rate loan. Therefore, there is a need for a self-service system and method for enabling a borrower to conveniently convert a portion or all of the borrower's outstanding line of credit into a fixed rate loan without requiring human intervention by the lender.